The UK Supreme Court has finally had a bite of the cherry in the gig economy space, delivering its judgment on whether a plumber Mr Smith, working for Pimlico Plumbers, was a “worker” or self-employed. The answer? He was a worker. In this article, Tara Grossman examines the decision and looks at its implications.
Mr Smith worked for Pimlico between August 2005 and April 2011.He brought a claim in August 2011 claiming that he was an employee and/or worker of Pimlico.The EAT found that Mr Smith was not an employee of Pimlico and Mr Smith did not appeal that decision.
The main question for the Supreme Court to decide was whether Mr Smith was a “worker” pursuant to section 230(3)(b) of the Employment Rights Act 1996 which states:
“In this Act “worker” …means an individual who has entered into or works under any other contract… whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.”
In order to satisfy this test, Mr Smith had to prove that:
- He was under an obligation to “perform personally” his work for Pimlico; and
- Pimlico was not a client or customer of Mr Smith’s.
It is the first part of this test – the obligation to provide personal service – which was the key issue in the case and the focus of most cases concerning employment status.
In order to determine whether Mr Smith had to perform work personally for Pimlico, it focussed on whether he had the right to send a substitute in his place for a plumbing job.
The Court found that Mr Smith had only a limited right to send a substitute to a job; Mr Smith could only send another Pimlico plumber to perform his work and the right was not set out in his contract. Critically, Mr Smith did not have a contractual right to send a substitute to perform the services in the event he was unwilling or unable to perform the services.
In light of this, the Court found that Mr Smith was under an obligation to perform work personally for Pimlico.
Was Pimlico a Client or Customer of Mr Smith?
Pimlico argued that the following factors should be taken into account in determining whether Pimlico was a client/customer of Mr Smith:
- Mr Smith was entitled to reject any offer of work (for whatever reason);
- Mr Smith was free to take outside work albeit not if offered by Pimlico’s clients;
- Pimlico did not supervise or interfere in any manner with the way that Mr Smith did his work;
- Mr Smith took on financial risks of taking on Pimlico work (e.g. he was bound by the estimate he gave to the ultimate customer, Pimlico didn’t pay him until the client had paid Pimlico, if a client paid more than 1 month late, its payment to him was halved, if a client complained about his work, Mr Smith had to remedy the problem and would receive no payment until he had done so).
These factors were not enough to convince the Court.The Court found that Pimlico was not a client/customer of Mr Smith’s for the following reasons:
- Mr Smith had to wear a branded Pimlico uniform;
- Mr Smith had to drive a branded van to which Pimlico applied a tracker;
- Mr Smith had to carry an ID card;
- Mr Smith had to closely follow the administrative instructions of Pimlico’s control room;
- The severe financial terms imposed on Mr Smith was an indicator of subordination and control as opposed to real financial freedom; and
- The contract made references to “wages”,“gross misconduct” and “dismissal” and it contained restrictive covenants restricting his activities following termination.
In light of the above, it was found that Pimlico was not a client/customer of Mr Smith’s and given that he had an obligation to personally perform the work, he was a “worker”.
The implications of being found to be a “worker” mean that Mr Smith has the following rights, amongst others:
- Statutory sick pay;
- Statutory holiday pay;
- National minimum wage;
- Discrimination rights; and
- Right to be auto-enrolled in a pension scheme (as long as they meet the qualifying earnings band).
The decision is consistent with previous decisions in this area which have found that individuals obliged to perform work personally are “workers” (e.g. Uber, Addison Lee and CitySprint). The only case that has gone the other way is the CAC Deliveroo case which found that Deliveroo drivers were not workers because they were not obliged to provide a personal service; they had an unqualified right to provide a substitute before and after accepting a particular job.
The law in this area is, by now, well-developed but highly fact-specific. The Deliveroo case is currently being judicially reviewed and the Court of Appeal is due to hear the appeal in the Uber driver case on 30 October 2018. In the meantime, the government is continuing to consider reform.In response to the Taylor review, it has launched a consultation into employment status stating that it will examine “options, including possible new legislation, to make it easier for both the workforce and businesses to understand” what their employment status and rights are.
This is a tricky issue for gig economy and platform companies, as they naturally want to control the quality of person they allow on their platform but at the same time do not want to risk the self-employed status of the individuals signing up to the platform.Setting aside the extra cost they would incur, this would lead to a complete switch in business model from operating a tech platform (with very few people to manage) to having a workforce of (in some cases) thousands.
The key for gig economy and platform companies in reducing the risk of worker findings is to focus in on the right of substitution.Ideally, the individual would have an unfettered contractual right to substitute another individual to do the job and that individual would not have to come from the same platform.Furthermore, it can be advantageous for businesses to specifically communicate the contractual right of substitution to the individual and to document that this communication has taken place (e.g. by the individual confirming they have been advised of this right and are fully aware of the right to exercise it).Also ideally this would be something that actually happens in practice. Where it does happen in practice, businesses would benefit from maintaining a record of it, as evidence that the right of substitution is genuine and has been exercised.
If the business cannot agree to a right of substitution, or the ability to substitute is impossible in reality despite a contractual right, there are likely to be greater employment law and tax risks in engaging self-employed contractors and it may be prudent for the business to consider alternative operating models or at least prepare for the risks.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.